It was a much different world when Salesforce was trying to establish software-as-a-service as the next frontier in enterprise technology in the early 2000s.
The company made success look easy. It took in just $65 million in outside funding, went public a little more than four years after it launched in 1999 and relied on marketing gimmicks like a fake protest of an Siebel Systems conference to spread the word that web browsers and internet speeds could now handle the demands of enterprise customers.
Two decades later, SaaS is a $158 billion industry with thousands of vendors. Private upstarts are raising single rounds valued in the hundreds of millions, if not billions of dollars per round. The rush of new options means SaaS newcomers must compete on the strength of their products, and not viral marketing campaigns, to convince end customers outside the IT department to adopt their software.
But a new crop of providers is emerging that wants to create entirely new software categories around the maturing needs of cloud converts and innovations in areas like data management — and hopefully become the next Salesforce along the way.
Databricks is a pioneer in creating the data lakehouse architecture. Confluent and Amplitude are early leaders in the emerging real-time analytics market. Celonis claims it's building the "execution management" category. Canva touts the creation of the "visual economy" market. Those companies and others face much different hurdles now than Marc Benioff and his executive team did two decades ago.
"It's a big challenge if you are trying to do something that's genuinely new. A lot of people who are doing category creation, it's not really new. It's just a rebranding," Confluent CEO Jay Kreps told Protocol. "It's a powerful thing when you do it. There's a lot of advantages to companies that are first in a new category. But it's a big hill to climb."
Even a vendor like Snowflake, which was taking an existing concept and moving it to the cloud, found success by touting the product as the launch of a new category.
"It was a big, massive existing market. People understand what data warehouses are all about. Our differentiation is the fact that we were built for the cloud," said marketing chief Denise Persson. The company debated other categories, did "extensive focus groups … and tested all these different concepts with prospects that had never heard about Snowflake" before committing to the "cloud-based data warehouse" branding, she added.
Benefitting from SaaS complexity
When trying to establish nascent software categories, new products are often labeled as "first of their kind," helping to create a sense of intrigue and buzz. As a result, those companies can claim to be the only ones solving an enterprise's most pressing IT problems.
That can become a virtuous cycle, if you're an enterprise tech founder or investor: As more SaaS startups try to tackle newer market opportunities, others emerge that help solve problems created by those applications.
"There's more systems, there's more SaaS layers, there's more databases," said Kreps. "What we benefit from the most is the explosion of complexity in the landscape."
Trying to pioneer a new market has its downsides. Thanks to advantages like easier access to financing and an influx in cloud-based programs that can help reduce operational costs, it's easier than ever to launch a business these days, founders say, which is forcing the buzzy upstarts to scale very quickly. That wasn't the case with Salesforce, which was largely just trying to upstage PeopleSoft — albeit a difficult task in its own right.
But that pressure comes from more than one direction. Many are also challenging the dominance of cloud providers like AWS and Microsoft, which can dangle huge compensation packages in front of new recruits and invest billions in research and development.
Those more-intense capital needs are one reason why enterprise software fundraising has gotten so out of control: Databricks has raised $3.5 billion, Amplitude raised around $337 million before it went public in September, Confluent raised $456 million before an IPO in June, Celonis has taken in $1.3 billion and Canva has raised $587 million.
"Lots of other vendors are going to jump in and claim to be the real lakehouse. It's already happening, so execution will matter a lot," said Databricks CEO Ali Ghodsi. "Creating a new category is going to take a lot of investment, especially on the R&D side. Getting that talent is expensive. When we're hiring engineers, the competition is Google. And we're not talking about junior engineers … it's top level," he added.
However, launching a company now — or in the past few years, at least — does give founders some advantages over legacy providers and big cloud companies. For example, companies like Adobe still have to deal with a customer base split between those who store their data fully on-premises, those who have fully embraced the cloud and those who have a hybrid structure.
That's a challenge that newer vendors like design software provider Figma aren't grappling with at the same level.
"We are standing on the shoulders of giants" like Adobe, said Figma CEO Dylan Field. But "having to build up from an offline world is really hard. We're in that unique advantage where we can build everything from a cloud environment."
Growth at all costs
Overall, it's a much different landscape for software startups than it was in the early 2000s, which is allowing those aspiring vendors to pursue a much different — and much quicker — growth trajectory, according to industry experts.
Some startups "are growing faster than any other prior business has," LSVP partner Arsham Memarzadeh told Protocol. "It's no longer the old 'triple-triple-double-double-double' from a revenue standpoint, but 6x this year, 5x next year."
One only has to look to industry leaders like Atlassian to understand just how noteworthy this shift has been. The company began in 2002, as Silicon Valley was still reeling from the burst of the dot-com bubble. Throw in the fact that Atlassian is based in Australia and fundraising was a more difficult endeavor at the time compared to the environment today.
"To say that it's a different situation [now] than when Atlassian started would be the understatement of all understatements," said Chief Revenue Officer Cameron Deatsch, who joined the company in 2012. "The amount of capital, time and investment required to actually just build a new solution that is [enterprise]-ready and then deliver that effectively to customers is way less than it was 20 years ago."
As a result, its growth trajectory was smaller and not focused on "triple-digit growth in the first year," according to Deatsch. And instead of focusing on the CIO — who, at that time, controlled most tech spending — Atlassian targeted developers and made it easy for them to independently sign up for the product. But even that was more difficult, as there weren't as many ways to market to that audience.
Now, other startups are doubling down on that strategy as more IT departments enable line of business leaders to purchase the software that works best for their teams.
For example, Amplitude is focusing its sales efforts on the chief product officer. But the company has tackled just 1% of the universe of CPOs, per CEO Spenser Skates, and increasing that number requires a major change in mindset among the user base.
"We're the first company to go out that's really dedicated to serving that person," Skates said. But "it's not a given that they are going to use data to run product teams. That's a shift that's just been happening."
As more startups take advantage of an explosion of SaaS and look to piece together different functions or fill in gaps they see in the tech stack, expect to hear even more founders claim to be building a new category.
However, the challenge will increasingly become convincing end users they offer a service that solves something unique compared to their already sprawling IT suite.
"You have to create more education in the market, you have to put more resources behind marketing, because it's not just displacing an existing vendor," said Memarzadeh.
Clarification: This story was updated to clarify the nature of Snowflake's early product strategy.
